DEFINITION of 'Social Security'

Social Security is an important part of the Old-Age, Survivors, and Disability Insurance (OASDI) program. This is a social welfare and insurance plan managed by the U.S. federal government that pays benefits to retirees, as well as to workers who become disabled and to survivors of deceased workers. Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.

Based on the year someone was born, retirement benefits may begin as early as age 62 and as late as age 70. The amount of income received is based on " average indexed monthly earnings" during the 35 years in which you earned the most.  Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced spouse can also receive spousal benefits, if the marriage lasted 10 years or longer. 

BREAKING DOWN 'Social Security'

How Social Security Benefits are Calculated

The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, the program is funded through payroll taxes collected by employees and companies; monies are placed into the Social Security Trust Fund and payments are managed by the government along with the Federal Reserve Board.

Social Security benefits are unique to each individual's situation but factors include, lifetime earnings, marital status, total retirement income (this amount affects whether your benefits are taxed or not), retirement age, and if your home state taxes your benefits. 

The Future of Social Security

Social Security has faced serious solvency issues for many decades; today's payments are made from current payroll contributions by workers who may not have money available for them when they retire. Social Security reform – whether through legislation, tax law changes, or privatization – has been a major political issue that draws strong opinions from different demographic segments.

Social Security faces the real threat of becoming insolvent because of factors such as longer life expectancies, a large Baby Boomer population currently entering retirement age, and inflation.

To learn more about Social Security, check out Can my spouse and children collect my Social Security when I die?  and Types of Social Security Benefits.

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